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The Role of Board Evaluations in a Family Business

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Years after creating a board with independent directors, family business owners often say that it was one of the best decisions they ever made. It stands to reason that it’s important to keep the board vibrant and well-equipped to help the family enterprise prosper in the future. Regular board evaluations are an important means toward that end.

Some family business boards have director terms of say three years with staggered expirations and others simply hold annual elections. Some create age and / or term limits. Others think more qualitatively about active engagement, mental acuity and a soft target of up to ten years of service on the board. Irrespective of any of these approaches to board tenure, an essential step in a regular board evaluation process is the creation of a board matrix.

Defining the Cumulative Competence of a Board
The board matrix identifies director skills, experiences and attributes that will be valuable in supporting the envisioned future for the family enterprise. Consider a second and third generation family business planning to grow from $200M to $500M in the next ten years powered in part by significant expansion of their fledgling direct to consumer e-commerce business. They anticipate promoting or recruiting a non-family CEO to fill a seven to ten year gap between when G2 wants to retire and someone from G3 will be ready to take over. Looking ahead, they see these (abbreviated) composite criteria for board members:

Experience in a multi-generational family business with annual revenue over $200M and preferably over $500M
C-Suite experience currently or very recently, preferably CEO or CFO
Experienced with a transition from a family to a non-family CEO
Business board experience
At least one of the independent directors with experience overseeing the growth of a B2C e-commerce business

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